Rising fuel costs will be the main culprit cutting into US airlines' profits this year, with credit market turmoil and slowing passenger demand also expected to hamper the industry worldwide.
High jet-fuel prices will limit US airlines' combined profitability to between US$3.5 billion and US$4.5 billion this year, compared with last year's estimated profit of US$5 billion, the Air Transport Association said on Friday. Meantime, the International Air Transport Association, which anticipates profits for domestic and foreign carriers to fall to US$5 billion from US$5.6 billion, called signs of weakening passenger demand a "warning bell" for this year.
To bolster their finances in the face of a slowing US economy, more expensive fuel and higher borrowing costs, US-based carriers must continue to improve fuel and other efficiencies while increasing their share of business and international travel, said ATA Chief Economist John Heimlich.
Higher fares also seem likely.
A spokeswoman for United Airlines on Friday said the second-largest US carrier raised domestic fares by US$10 to US$20 round-trip to offset rising fuel costs. The move is the latest in a series airlines have attempted in recent months as the price of jet fuel has soared.
Shares of major carriers were pummeled last year with big drops coming at the end of the year, as oil prices climbed toward US$100 a barrel -- a threshold broken earlier this week.
"Rising oil prices have a disproportionately negative impact on US carriers, since oil is traded in dollars," Heimlich wrote in an e-mail. "Foreign carriers generally have more robust hedge positions than US carriers, leaving them less exposed to the soaring oil prices."
Shares of American Airlines' parent AMR Corp finished down nearly 60 percent at US$13.35 on Dec. 31, while United parent UAL Corp dropped about 32 percent to close at US$31.75.
On Friday, AMR closed down US0.14 to US$13.21. UAL rose US$1.40, or 4.4 percent, to US$33.15, despite hitting a new annual low of US$29.46 in earlier trading.
British Airways shed about 43 percent on the London Stock Exchange last year, while Air France KLM lost 23 percent on the New York Stock Exchange.
Despite the expected decline in US carriers' profitability, this year's profit would mark the industry's third straight year of profit, which has not happened since 1998 to 2000 and would follow a five-year combined loss of US$35 billion, Heimlich said.
The outlook, however, is less rosy.
"We ring in 2008 with a warning bell," IATA chief executive officer Giovanni Bisignani said in a release, pointing to concerns ranging from high oil prices to the global credit crunch.
"Passenger demand growth is expected to fall to 5 percent. And the expected increase in freight demand growth to 4.3 percent will only help us recover some of the ground lost against sea shipping," he said.
Shares of contract chipmaker Taiwan Semiconductor Manufacturing Co (TSMC, 台積電) came under pressure yesterday after a report that Apple Inc is looking to shift some orders from the Taiwanese company to Intel Corp. TSMC shares fell NT$55, or 2.4 percent, to close at NT$2,235 on the local main board, Taiwan Stock Exchange data showed. Despite the losses, TSMC is expected to continue to benefit from sound fundamentals, as it maintains a lead over its peers in high-end process development, analysts said. “The selling was a knee-jerk reaction to an Intel-Apple report over the weekend,” Mega International Investment Services Corp (兆豐國際投顧) analyst Alex Huang
Taiwan Semiconductor Manufacturing Co (TSMC, 台積電) is expected to remain Apple Inc’s primary chip manufacturing partner despite reports that Apple could shift some orders to Intel Corp, industry experts said yesterday. The comments came after The Wall Street Journal reported on Friday that Apple and Intel had reached a preliminary agreement following more than a year of negotiations for Intel to manufacture some chips for Apple devices. Taiwan Institute of Economic Research (台灣經濟研究院) economist Arisa Liu (劉佩真) said TSMC’s advanced packaging technologies, including integrated fan-out and chip-on-wafer-on-substrate, remain critical to the performance of Apple’s A-series and M-series chips. She said Intel and Samsung
POWER BUILDUP: Powered by Nvidia’s B200 Blackwell chips, the data center would support MediaTek’s computing power demand and business growth, the company said Smartphone chip designer MediaTek Inc (聯發科) yesterday launched a new artificial intelligence (AI) data center with a maximum capacity of 45 megawatts to meet its rising demand for computing power required to develop new advanced chips for AI applications. The company has completed the first-phase computing power buildup at the data center in Miaoli County’s Tongluo Township (銅鑼), providing 15 megawatts of capacity to support its research and development (R&D) capabilities, despite an industrywide shortage of key components, MediaTek said. Supply constraints have plagued a wide range of key components, including memory chips, solid-state drives, power supply units and central
TRANSITION: With the closure, the company would reorganize its Taiwanese unit to a sales and service-focused model, Bridgestone said Bridgestone Corp yesterday announced it would cease manufacturing operations at its tire plant in Hsinchu County’s Hukou Township (湖口), affecting more than 500 workers. Bridgestone Taiwan Co (台灣普利司通) said in a statement that the decision was based on the Tokyo-based tire maker’s adjustments to its global operational strategy and long-term market development considerations. The Taiwanese unit would be reorganized as part of the closure, effective yesterday, and all related production activities would be concluded, the statement said. Under the plan, Bridgestone would continue to deepen its presence in the Taiwanese market, while transitioning to a sales and service-focused business model, it added. The Hsinchu
RSS